The largest emerging market economies like India are experiencing an even “more pronounced” effect of the global downturn, new International Monetary Fund (IMF) chief Kristalina Georgieva said on Wednesday, warning that the global economy is witnessing “synchronised slowdown” which will result in slower growth for 90% of the world this year.
The IMF managing director pointed out that the widespread deceleration meant that growth this year would fall to its lowest rate since the beginning of the decade.
She said the World Economic Outlook to be released next week would show downward revisions for 2019 and 2020.
“In 2019, we expect slower growth in nearly 90% of the world. The global economy is now in a synchronized slowdown,” Ms. Georgieva said in her curtain raiser speech for the IMF and the World Bank’s annual meeting here next week.
The headline numbers reflect a complex situation, she said.
Despite this overall deceleration, close to 40 emerging market and developing economies are forecast to have real GDP growth rates above 5% — including 19 in sub-Saharan Africa, the IMF chief said. In the U.S. and Germany, unemployment is at historic lows.
Yet, across advanced economies including the U.S., Japan and especially the Euro area, there was a softening of economic activity, she said.
“In some of the largest emerging market economies, such as India and Brazil, the slowdown is even more pronounced. In China, growth is gradually coming down from the rapid pace it saw for many years.”
The precarious outlook presents challenges for countries already facing difficulties — including some of the Fund’s programme countries, she noted.
The RBI on Friday lowered India’s GDP growth estimate for the year to 6.1% from the earlier 6.9% due to the ongoing period of economic slowdown.
Ms. Georgieva called for using monetary policy wisely and enhancing financial stability.
“Now is the time for countries with room in their budgets to deploy — or get ready to deploy — fiscal firepower. In fact, low interest rates may give some policymakers additional money to spend,” she said.
Referring to new IMF research, which shows how structural reforms can raise productivity and generate enormous economic gains, she said these changes would be the key to achieving higher growth over the medium and long term.
“The right reforms in the right sequence could double the speed at which emerging markets and developing economies reach the living standards of the advanced economies.” While the need for international cooperation is going up, the will to engage is going down, she said.
“Trade is a case in point. And yet, we need to work together. From safely adapting to fintech, to fully implementing the financial regulatory reform agenda, to fighting money laundering and the financing of terrorism,” Ms. Georgieva said.
Describing climate change as a crisis where no one was immune and everyone had a responsibility to act, she said one of its priorities was to assist countries as they reduce carbon emissions and become more climate resilient.
At the current average carbon price of $2 per tonne, most people and most companies have little financial incentive to make this transition. Limiting global warming to a safe level requires a significantly higher carbon price.
The Bulgarian economist was confirmed last month as the IMF MD, becoming the first person from an emerging economy to head the global lender.